SEBI (Securities and Exchange Boards of India)

SECURITIES AND EXCHANGE BOARD OF INDIA

Author: Divya Vishal

INTRODUCTION

SEBI is a legal administrative body endowed with the duty to manage the Indian capital markets. It screens and controls the investors by protecting their interests and the securities market by upholding certain principles and regulations. The goal of SEBI is to guarantee that the Indian capital market works in a methodical way and furnish speculators with a straightforward domain for their venture. To lay it out plainly, the essential explanation behind setting up SEBI was to forestall misbehaviors in the capital market of India and advance the improvement of the capital markets.

Initially SEBI was introduced in 1988 as a non statutory organization but later it was made an Autonomous and Independent Regulatory body after the introduction of the Securities and Exchange Board of India Act, 1992 by the Indian Parliament. SEBI works under the Ministry of Finance. Finally SEBI was established on April 12, 1992, under the SEBI Act, 1992. It’s headquarters is situated in Bandra Kurla Complex, Mumbai, India. SEBI has local workplaces in New Delhi, Chennai, Kolkata and Ahmedabad alongside other neighborhood provincial workplaces across noticeable metro cities in India.

It is the most noteworthy administrative body concerning the working of the Security Markets, Stock Exchanges, Commodities Markets and so forth in India. SEBI now has statutory forces with respect to guidelines of the market of Securities and Commodities in India.

COMPOSITION/ FORMATION

SEBI executes its functions under multiple departments and each department has its own department heads. Some of these are: Human Resources Department, economic and policy analysis, IT, corporate, Foreign Portfolio Investors and Custodians, International affairs, etc. It is composed of a Board of 9 individuals –8 members and 1 chairman

• The Chairman of SEBI is designated by Central Government. The present Chairman is Mr. Ajay Tyagi.
• 2 members are designated by the Finance Ministry of India.
• 1 member of the SEBI board is selected by The Reserve Bank of India.
• The remaining 5 members out of which 3 must be full time are designated by the Indian Government.

FUNCTIONS

SEBI basically performs three types of functions:-

Protective or Defensive functions–

• Checking value fixing
• Forestall trading among insiders
• Encourage just practices
• Raise knowledge among investors
• Disallow deceitful, unjust and fraudulent activities

Administrative functions–

• Planning rules and set of principles for the best possible working of money related mediators and corporate.
• Guideline of takeover of organizations
• Leading requests and review of trades
• Enlistment of dealers, sub-representatives, bankers and so forth.
• Collecting of charges
• Performing and practicing powers

Advancement functions-

• Training to intermediates
• Advancement of just and honest practices and decrease of arbitrariness and wrongdoings.
• Executing Research work
• Empowering self-building associations
• Purchase or sell common assets straightforwardly from asset management company (AMC) through an intermediary.

POWER/AUTHORITY

Protections and Exchange Board of India has the accompanying three powers:

Quasi-Judicial: With this position, SEBI can direct hearings and pass administering decisions in instances of unscrupulous and deceitful trade. This guarantees straightforwardness, decency, responsibility and dependability in the capital market. An example of this would be the PACL Scam case.

Quasi Legislative: Powers under this fragment permit SEBI to draft rules and guidelines for the securing investor’s interests. One of these regulations is SEBI LODR (Listing Obligation and Disclosure Requirements). It targets solidifying and smoothing out the provisions of existing agreements of listing for a few portions of the monetary market like equity shares. This sort of guideline detailed by SEBI intends to keep any negligence and deceitful trading a under control.

Quasi Executive: SEBI is approved to record an argument against any individual who abuses its principles and guidelines. It is enabled to assess account books and different records too on the off chance that it discovers hints of any dubious action.

OBJECT AND ROLE

The primary goal is to make a domain that encourages the viable assembly and allocation of assets by the way of securities market. More than 3% of the sample investors feel happy and good about the capital market regulation in the country.[1] SEBI upholds rules and guidelines, strategy system, practices and foundation to address the issues of 3 parties which for the most part comprise the market for example guarantors of protections (organizations or companies), the financial specialists i.e. the investors and the market delegates i.e. the intermediaries. It was arrangement to address the issues of the following parties:

Issuers: It gives a commercial market wherein they can bring assets up and procure funds in a simple and productive way.

Investors: For them, it gives assurance, security and correct data all the time.

Intermediaries: For them, it gives an expert market i.e. competitive. It additionally assists them with offering better support to the investors and guarantors by giving them effective foundation and infrastructure.

JURISDICTION

SEBI purview and limits is characterized inside the SEBI Act 1992 and a couple of arrangements of the Companies Act. SEBI Act gives the functions and authority of the SEBI board under Section 11, 11A, 11B, 11C, 12 and 12A.We can see that the SEBI board has been given a huge exhibit of powers under the SEBI Act to manage the monetary and securities market. These powers are excessively expansive for a cross-segment regulator. Because of these causes, there have been numerous contentions which have emerged between different controllers either from particular sector or cross-sector regulators. These contentions are not effortlessly settled prompting strains between the buyers, consumers, investors and other market administrators. Some of the recent instances of such disputes are-

Sahara case[2]

In the Sahara case, the issue emerged about the jurisdictional limit of SEBI and whether SEBI had purview over unlisted organizations. Sahara Housing Investment Corporation Limited (SHICL) and Sahara India Real Estate Corporation Limited (SIRECL) are unlisted organizations and had given Optionally completely convertible debentures (OFCD’s) to 3 Million supporters with a settled up capital of Rs. 10, 00,000 and no advantages.

SEBI took up the issue and gave a show cause notice to both the organizations under Section 67 (3), Companies Act. SEBI by an order of a member(whole-time)  from SEBI on 23 June 2011 offering headings to both the companies under Section 11 to direct and collect information. SHICL spoke to SAT and afterward the Supreme Court asserting that an unlisted organization doesn’t go under the domain of SEBI and is controlled by Unlisted Public Companies (Preferential Allotment) Rules 2003 not by the SEBI but by the Registrar of Companies.

The Supreme Court contemplating Section 55A of the Companies Act 1956 expressed that any public proposal by an unlisted company for in excess of 49 people would go under the domain of SEBI. The court utilized the idea of harmonious construction under Section 55A, Companies Act and the SEBI Act to arrive at such a resolution. Subsequently, the contention of jurisdiction among SEBI and the registrar of companies are challenged by SHICL was settled by the Supreme Court of India.

Similarly, the dispute of jurisdiction has emerged in the Chit fund case.

Saradha Chit fund case[3]

This scam was a ponzi scheme or a fraudulent scheme run under the appearance of an investment scheme by the Saradha organization alongside 200 privately owned businesses in Eastern India .It destroyed many of its depositors.

SEBI on the invasion of the Saradha Chit finance scam had disclosed its failure to research and investigate the scam as it was outside the domain of its ward. SEBI was vigorously censured and criticized for not having the option to manage and check the progressing Ponzi plot. SEBI officially answered to the Parliamentary standing board of trustees formed to submit an account of chit assets in India expressing that it has been obliged to investigate such acts of neglect because of jurisdictional failure. SEBI didn’t have jurisdictional position to direct and make checks upon aggregate venture plans under the old law. A correction under Section 11AA of the SEBI Act, 1992 was made to fuse aggregate venture plans under the domain of SEBI to maintain a strategic distance from any further questions between controllers by the governing body. SEBI has further advised the parliamentary board of trustees to extend its purview where companies regulated money from contributors legitimately or in an indirect way. Along these lines, expulsion of jurisdictional way to deal with cross sector controllers may likewise prompt unwanted outcomes.

A solitary administrative body may not be the best way to deal with this issue considering India because of the structure which has become so entrenched, in which the most ideal arrangement that can be embraced is one of concurrent jurisdiction or obligatory consultation. This would guarantee no jurisdictional conflicts between the distinctive administrative organizations and SEBI in the future. But it must be actualized with due care to guarantee that the goal and motivation behind expressing such purviews by the lawmaking body isn’t lost.

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[1] Sunundha S, Essay on SEBI, Stock Exchange and Financial Management, Available at

https://www.businessmanagementideas.com/essays/sebi-essays/essay-on-sebi-stock-exchange-financial-management/15916 accessed on 23^rd July, 2020.

[2] Sahara India Real Estate Exchange Corpn. Ltd. v. SEBI, (2013) 2 SCC 733

[3] Subrata Chattoraj v. Union of India, (2014) 8 SCC 768